Public scrutiny bolsters appeal of onshore funds in the Nordics

High profile members of the Nordic private equity community gathered in London yesterday to discuss the year gone by as well as the future of the industry – with the question of the impact of private equity on the local economy and its standing with regulators taking centre stage.

EQT partner Anders Misund stated that the mainstream media's habit of depicting private equity as a secretive and dishonest business has sparked a debate at the highest governmental level: are private equity firms "good" or "bad" as owners? "EQT is a responsible owner, is transparent and we listen to the worries from different stakeholders and have, among others, chosen to domicile all new funds since 2013 onshore," he said. "The question is: does private equity contribute constructively to society's needs? We believe some do and some don't. It's clear to me that the industry has to change. Those who have made their success based on cooking the books have no future. Those days are behind us. We don't want to be merely investors, but great owners and have a positive social impact."

Given this backdrop, the discussion on fund formation centred around the appeal of onshore structures – and seeing wether more GPs would follow in EQT's footsteps. Segulah's Sebastian Ehrnrooth and Christopher Arkbrant from Mannheimer Swartling discussed how tax issues are currently changing the landscape of Swedish funds – predominantly Guernsey-based in the past, but increasingly established closer to home. "The change is not driven by a change in the law, but rather down to a change in the interpretation of existing law," said Arkbrant. Ehrnrooth said it was too early to tell whether or not the shift was here to stay, but emphasized the transparency advantages of basing funds onshore, and even in Sweden if possible.

With private equity often caricatured as a greedy and cold-hearted business focused on tax avoidance, Ehrnrooth noted that paying due attention to where a fund is based would go a long way towards gaining public acceptance, not least because several Swedish LPs have publicly stated they will not invest in offshore funds. Furthermore, Arkbrant raised the important point that the Swedish tax authority – which battled against Nordic Capital for the best part of 2013 – has not targeted any Swedish-structured funds so far.

But participants did not shy away from the fact that rethinking local fund structures will not come without challenges. The point was raised that onshore structures do not offer the same flexibility as Guernsey- or Jersey-based funds. In addition, panellists stressed that investors need to be sure the structures will not change within a 15-year period. While established fund managers might encounter obstacles in changing domiciles, it is arguably easier for first-time funds, such as Adelis, which launched its Swedish-based structure in 2013; the firm raised well above expectations in less than six months.

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